Determination of inflationary behavior: A comparative analysis

Figures & data

Table 1. Equations for estimation of NKPC

${\pi }_t={\beta }_0+\alpha {\hat{y}}_{t-1}+{\beta }_1{\pi }_{t-1}$ 1

${\pi }_t={\beta }_0+\alpha {\hat{y}}_{t-1}+{\beta }_1{\pi }_{t-1}+\delta {\pi }_t^w+\gamma dle{x}_t$ 2

${\pi }_t={\beta }_0+\alpha {\hat{y}}_{t-1}+{\beta }_1{\pi }_{t+1}$ 3

${\pi }_t={\beta }_0+\alpha {\hat{y}}_{t-1}+\mu {\pi }_{t+1}+\delta {\pi }_t^w+\gamma dle{x}_t$ 4

${\pi }_t={\beta }_0+\alpha {\hat{y}}_{t-1}+{\beta }_1{\pi }_{t-1}+\mu {\pi }_{t+1}$ 5

${\pi }_t={\beta }_0+\alpha {\hat{y}}_{t-1}+{\beta }_1{\pi }_{t-1}+\mu {\pi }_{t+1}+\delta {\pi }_t^w+\gamma dle{x}_t$ 6

Instruments for Estimation of NKPC

Two Lags of following variables are used as instruments Output gap,^4 agricultural output gap for developing economies, manufacturing output gap or industrial production gap for developed economies, industrial production index, GDP deflator inflation, CPI inflation, primary basic inflation, whole sale price index or producer price index, eggs’ inflation, natural logarithm of exchange rate, and natural logarithm of money supply (M2) for all other countries and natural logarithm of M4 for UK.

Table 2. Estimates of NKPC^a

Country coefficient	Pakistan	Turkey	South Korea	Canada	UK	U.S.
Constant	−7.91 (−4.01)	−2.90 (−2.89)	−1.19 (−1.75)	−0.44 (−2.51)	−1.04 (−2.19)	−0.50 (−2.38)
${\hat{y}}_{t-1}$	0.14 (3.14)	0.35 (3.52)	0.13 (1.84)	0.06 (2.18)	0.21 (4.42)	0.15 (3.39)
${\pi }_{t-1}$	0.27 (5.86)	0.54 (10.73)	0.33 (7.37)	0.43 (6.87)	0.62 (14.50)	0.35 (7.25)
${\pi }_{t+1}$		0.21 (2.92)	0.27 (3.91)	0.37 (5.23)		0.46 (5.45)
${\pi }_t^w$	0.89 (8.36)	0.78 (2.59)	0.50 (2.41)	0.18 (4.18)	0.38 (3.75)	0.18 (2.59)
$dle{x}_t$	2.29 (5.78)	0.19 (6.85)	2.86 (0.87)	0.01 (0.55)	−2.43 (−1.19)
${\bar{R}}^2$	0.57	0.94	0.88	0.88	0.88	0.87
SE regression^b	2.16	4.99	1.79	1.001	0.87	0.93
J-statistic	6.21	7.20	5.50	7.10	7.57	5.66
Prob (J-statistic)	0.96	0.92	0.85	0.85	0.91	0.77

^aValues in parenthesis are values of t-statistics at 5 percent levels of significance.

^bSE regression = Standard Error of Regression.